Blockchain: Enter Google, Exit BitCoin?

The Path Forward for Blockchain

BlockChain is Fracking, Lateral Drilling, and Globex All Over Again

Before reading please note, these are general musings based on observation and experience. No trade recommendations are offered. You should consider this as an intro into one group's view of the future.

Based on our collective observations and experience at Soren K. Group we feel as qualified as anyone to opine on the path ahead for Blockchain adaptation and success determiners. One of us has already been publicly dubbed as "expert" in the field of pygmies. We would simply say that our knowledge is based on applying existing models to the field.

What we do understand intimately, especially Soren K, "Bon Scott", and "Fay Dress", are that market structure is key to understanding the path of any disruptive industry development. That helps us handicap the path forward for this new game-changing industry. We know how it ends. The trick is understanding the likely path to that end.

We love assessing new developments in old industries like lateral drilling in oil, fracking in Nat Gas, Retail (Amazon made Scaling less important than Networking) and now in Banking.

We see Blockchain as totally changing Banking's ( and a ton of other industries) face in the next 10 years. The "How" is dependent on the people at the helms of the industries affected by the C2C model blockchain enables. Secure individual ledger accounting kills disintermediators just like globex obviated many brokers and then how algos unemployed traders.

For now lets briefly focus on the immediate developments in Blockchain and what they broadly imply the potential paths are ahead for the groundbreakers (Bitcoin, Ethereum) and the lurking Tech Behemoths (Google, Amazon). It is during these times of disruption that not only do industries reprice themselves but traditional measurement tools like EBITDA etc. are worth less. These fundamental tools themselves are changing as new realities change industry PE baselines

It is during these times that conditional analysis and path dependency assessments are king in understanding change. When an industry is growing and its existing markets are is up for grabs is when knowing market structure and business models helps a lot in protecting yourself.

To do this one must see the relevant models for the industry and their limitations. They are the models governing Network and Scale.

Network Effect and Scalability Models

Network Effect

The business model of cryptocurrencies is based on the Network Effect model. A business that relies on networking is focused on adding users. It doesn't need to add infrastructure at first and increases in value simply by adding users. Essentially, as a network adds users it grows in value.

The Telephone was a good example. Once the wires were hung, the way to increase a phone company's stock is to add users. A successfully "networked" business makes its service indispsensible to people. Imagine being the last person in commerce to not have a phone. That businessman would pay a lot for the privilege or risk being excluded from his own business network.

A more recent example is electronic trading. Imagine being the last floor-trader trying to exit a position in an empty "pit" where everyone was executing on their E-trade screens. That is pure Network effect. The Network effect is the demand side of the "scalability" model.

Scalability

A business "scaling" successfully means it can add supply at lower marginal cost (operating leverage). A great example is mining. Once the drilling is done, an increase in supply is basically just adding more variable costs like labor and turning up the speed of extraction. The hole is already dug! But Scalability and Networking both have limitations andeventually need each other.

Risks to Both Models

One of the risks to the network model is the ability to grow to accomodate new "traffic". That means at some point it must add infrastructure. This is fairly easily done in Tech (though risky) compared to other industries. Scaling a network based Tech business is essentially opening up the architecture to other users with computing power. The first problem, like in trading exchanges before them is the incumbency created in successful people. And in Bitcoin we will see soon that the people in question are the voting members who control the mining servers and therefore their "fiefdoms". Going public may alleviate tahtrisk, but not remove it as discussed further down.

Scalability also runs into its own problems when it has a ton of potential supply it can bring to the market at a low marginal cost but no one wants it. At this point they must acknowledge a need for a greater network to sell to. That sometime means adding salesmen or marketing or partneringwith a selling NETWORK to raise awareness. Not easily done for any business whose people are "wired" for scale models. Again, the problem is management. Google has none of the issues that Bitcoin and the other crytos have going forward. Google and Amazon are not perfect, but they are perfectly positioned.

For here, let's look at Bitcoin's potential path by using Trading Exchange's Application of the Networking Business Model. Our analysis shows the businesses are very similar. For now we will cut to the chase.

GLOBEX 2: Enter the Google, Exit the BitCoin

Right now the BitCoin group is running into what we call "floor trader fear". The voting members are chafing at the idea of scaling their supply by adding servers and/ or server power. This would disrupt their own little empires, not unlike the trading floor fearing Globex back in the day. And so many exchanges held out and protected the floor. And in the end they died. PHLX, AMEX, COMEX, PCOAST, CSCE, all gone or absorbed because they were late to adapt new technology and protect their liquidity pools. If Bitcoin removes power from its voting members control by demutualizing and uses those proceeds to increase server power they will likely excel. But Google and Amazon are now playing and they are all about unlimited server power. Plus they have the eyeballs already. This is no unlike having the "marketmakers" already trading on a screen at Globex. The "liquidity pool" ofbuyers and sellers are already on Amazon and Google. Bitcoin does not have that past "early adaptors". Remember Palm?

When, not if, those behemoths are up and running they will immediately have an embedded network of both customers AND service providers at their disposal in the form of search eyeballs (google) and buyers (Amazon). They will be set up to crush the opposition if they choose to create their own currency. Imagine Amazon offering amazon money for amazon purchases. Now imagine them offering 20% discounts if you use their money. The choices at this point boggle the mind. Tactical choices thought no longer used will come into play again. Some examples: Freemium, Coupons, Customer Loyalty, Vertical Client Integration (P.O.S.), Travelers checks and more.

To be fair, Google has invested in Bitcoin as well. What smart trader would not hedge himself. But just like Netflix is Amazon's biggest cloud customer, but will eventually put Netflix out of business (after NetFlix kills Hollywood's distribution network); So will Google/ Amazon/ Apple attempt to obviate the need for any currency but their own.

Blockchain is the railroad. Amazon and Google have the oil. Like Rockefeller before, The railroad will be made "exclusive" to their products.

Google and Amazon are Already in the Game

Attached is the Daily Blockchain News recap with an example of Google's foray into Blockchain. The goal here is to introduce their own currency or be brokers of deals using their "search engine" coupons. The coupons are the gateway to their new currency. Exactly how this goes down we do nto know. This post is one example of how it could go down. The bottom line for the big tech companies is how they can lever their networks more efficently and add scale without increasing fixed cost. That comes in the form of levering existing networks with new products geared to cement loyalty. What better way to do this than to have your own money ? What will Home Depot do? WE HONOR AMAZON CASH? meanwhile the plumber, pipes, and sump pump you buy next month will all be through Amazon. And you'll get a discount by using Amazon cash on your amazon credit card.

Amazon and Google are just a big cash register with all their products at point of sale. Gum, Mints, and People magazine will become Disinfectant, Steam Cleaners, Rugs, and a Local Handy Man. And instread of asking for your loyalty card they will actually take blockchain driven Amazon currency. Remember ATMs? After everyone was on them, they stopped being free.

We feel that BitCoin is going to have problems going forward. They are also best positioned to overcome those problems. But if they do not increase computing power their client base will eventually be relegated to people trying to export their wealth from oppressive regimes. Meanwhile you and I will be buying Nike sneakers on amazon for 20% off because we are now using Amazon cash on our Amazon Credit cards. And Google will also offer similar concepts if you click on one of their paid advertiser links.

Amazon Suggests : Do you want a fidget spinner with your ADD Meds?

How to play it:

This is not short term stuff. When we made retail recommendations on how to play Amazon we could not personally pull the trigger on our own ideas as we were aware of short squeezes and things outside our commodity knowledge. But the question we asked ourselves was simple: Would you rather buy Amazon at ATHs or Sears at ATLs? The answer 3 months ago was Amazon. Which means we should have shorted every retail firm that was not positioning itself to survive. That meant shorting Target. The client did. We did not.

In that vein we are watching closely to see how Banks handle things as well as the usual players. For now; Bitcoin (NYSE) may do very well for years. Second tier players (like AMEX) in crypto will almost certainly go belly up. Amazon and Google (Globex) will destroy certain industries already under pressure when they adopt blockchain. Even energy will be affected. This ties in with the blockchain trades china is doing with Russia for oil deals already going down.

Imagine if Google enters the commodity trading field replacing ISDA and clearinghouses?! Why not? They took themselves public. if one continues monitoring the economic, technological, and Regulatory drivers behind the current market structure, a person can tweak this simple analysis to make their own decisions.

Short Term Trade Ideas For Giggles

Right now we are looking for new trade ideas in retail to sell short (downstream and upstream) with a 6 month time horizon and looking into shale oil's increasing balance sheet cannibalism to stay operational (The marketmaker who eventually puts himself out of business).. and as always we are married to Silver and it will be the death of us!!

There is 1 paired trade we like. Short apple, Buy amazon. Apple's walled garden model has had a good run, but we do not see it holding up against Google's open architecture style. And Amazon benefits. Now Amazon has its own shiny new thing to touch and feel called ECHO. Like an electrician who already services thewires in your walls, soon you will be buying stuff from Amazon through those walls.

Apple we bet is going to be the new "slide show projector" your grandparents drag out at parties and the kids roll their eyes. That's not to say it wont take a longtime for that to happen. Incumbency is hard to break for sure. But growth? We do not see it at the pace that amazon will grow and Google can grow. Apple is a big middle-aged rolodex to be pilfered by Amazon.The hedge for Apple just might be (Funeral) Service Corp Int'l.

Deals, Investments & M&As

Blockchain, the London-based bitcoin currency service provider, has raised $40 million of fresh funding, representing one of the largest investment rounds in the financial technology sector since Britain’s vote to leave the European Union.

PHILIPP SANDNER, Frankfurt School Blockchain Center:

Big IT companies such as Google have been rather quiet concerning blockchain technology so far. Therefore, this investment is a bold statement.

The Bitcoin craze is catching on in India. While tech geeks and young investors eye the digital cryptocurrency as its value soars, the government, too, is contemplating a course of action surrounding its regulation.

Regulation

Long time the European Union has taken a positive, but wait-and-see attitude towards blockchain and distributed ledger technology. Both related to use cases and regulatory intervention. But that is changing rapidly.

FAO: As I already commented in our sister publication, FinTech Daily News, it’s better late than never for Europe to move this way.

Startups, Accelerators & Hubs

The ethereum blockchain is beginning to show signs it's being impacted by a new influx of users.

Amid a surge in mainstream media interest, not to mention projects raising funds via ICOs, transaction backlogs were visible on the network. Data from Etherscan shows that more than 300,000 transactions were broadcast on 20th June, the highest amount ever observed on the two-year-old blockchain.

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Interesting analysis, but the authors appear to believe that PoW mining is the only way to maintain a blockchain ledger. Remove PoW from the equation and the network capacity issue becomes less dispositive.

Interesting projections. Here are the facts from my personal experience:

I left Chase Bank years ago in protest of their practices. I left Gmail years ago in protest of their practices. I left Windows for Linux three years ago in protest of their practices. I use Amazon to comparison shop and read reviews, then consciously buy at indie online shops.

I will NEVER voluntarily use either Amazon or Google, only if there are no alternatives. I suspect that I'm not an outlier, that a lot of other Americans are beginning to wake up to toxic food, toxic politics and toxic businesses.

Any "analysis" that extrapolates current business trends and leaves out good ol' fashioned American stubbornness is not going to be nearly as good as it may think it is. I don't care if I pay more, I don't care if it is more inconvenient. I just want to do my small bit to fuck them up and it's the price of admission.

You should remove the caps from NEVER, because you're obviously not that committed to your values, given that seven words later you qualify your stance with "only if there are no alternatives". Typical American "consumer". I suppose next you'll be telling us that you'll NEVER suck a dick, unless it tastes like chocolate?

I agree 110 percent. I only use Google as a last resort (use DuckDuckGo and ixQuick), deleted my faceplant account, use Bezos World to compare prices and then buy local, ebay or such. Doing my part to fuck with the leftwing oligarchs.

First crypto of which I became aware was bitcoin in 2012, immediately became enamored. Still to this day I admire both the creation, and the concept. However, 66 years on this planet taught me "they" will not allow Anything to exist unfettered outside of their sphere. In undergrad poly-sci I had to read Herbert Marcuse One Dimensional Man; did not give a flyin fig about anything other than getting high and nailing women; but, for some reason, correct or not, what I gleaned from Marcuse was this --- if "they" can not destroy that which exists unfettered outside their sphere; then "they" marginalize and co-opt it such that it exists only Inside their dimension under their terms. The example used at that time, either by Marcuse or my commie prof, was the vw bus. Hippies n such had taken the plain simple bus, and turned it into a unique "mobile home". So what happened ? The auto manufacturers co-opted that concept and mass produced conversion van. The hippie vw bus became a dinosaur. Here at zh I have made comments construed by many as anti-crypto. I am not anti-crypto. BUT, I do see "them" steadily co-opting crypto. The gates to the slippery slope slide are now open. When I read blythe masters was working on blockchain crypto for 'the boys', I knew the descent would be rapid and total
((and i re re re post this -- https://www.youtube.com/watch?v=Uc5rar0GhIM ))

Say that when you go to frank further asking for a loan. I think the word for people who have the in-go exceed the out-go with an eye to the future is frugal. Store up goodies durng the seven fat years so that I can eat during the seven lean years...now where have I heard that.

The disintermediation of banks sounds wonderful, screw those evil bankers. But bank credit money and crypto-currencies are NOT the same thing. The core business of banking is to make loans. And due to the magic of fractional reserve banking, making a loan is the same thing as printing the money. Since the credit also goes away when you pay the loan down, bank credit money supply grows and shrinks constantly, usually growing over time to accomodate inflation and a larger population. Cryptos don't do that. They are more like base reserves, or gold. Their supply is static.

Since bank credit money is 95% of our money supply, in a way cryptos are only competing against the other 5%.

A lot of folks consider fractional reserve banking as evil, but if it's done responsibly, it's not. The old saw that before we invented money we used barter for everything is totally wrong. People living in a village have always relied on credit with other villagers who they've known their whole lives. So if you have a bushel of corn and you need a new pair of shoes, you don't give your corn to the shoe maker, he gives you the shoes on credit, and you sell your corn on credit to somebody who needs it. These transactions arestrictly peer to peer, and don't go through any intermediary, you just remember them. You repay the shoe maker when you can. Fractional reserve banking is just an industrial scale version of that village credit system.

Usury is absolutely evil on (un)dead currency rather than living capital/cattle, because it can never be fully repaid and will always cause some people to go bankrupt from its disguised embezzling.

Fractional Reserve always included usury, so is an abomination of exponentially evil theft (no equivalent value for value), because the loan amount is recycled many times though deposits of the loan fake value, and loans of that for more deposit ....! It's essentally a Ponzi scheme with the banks as the only winners who keep both the interest and pillage any security when loans fail!

Basically fuck your sophistry supporting parasitic banksters and deliberatelly fraudulent neo-classical economics, which only exists to kill fair land (primary) taxation designed to encourage productive ownership and use of land, while supporting reasonable residency use of land!

If the bankers actually had a bushel of corn or a pair of shoes to swap there wouldn't be a problem. What they do is tell you to go to joe to get your shoes but keep paying them. Your reasoning is very faulty.

"Blockchain" is crap technology for a monetary system. The negatives would fill an Olympic swimming pool, if you take the blinders off and look at reality.

1. So now you want your currency (fiat currency, not "money") tied to a system that requires synchronization across thousands (millions? 10s of millions?) of PCs all over the planet? Really? Nobody sees any problems with that?

2. Along the lines of #1 block chain does not scale well beyond "small". Just because you can add more PCs does not mean you are "scaling". Throwing more women at making a baby does not make the process occur faster (not a perfect analogy, but it makes the point). Blockchain (Bitcoin) is way beyond the point where adding more machines does anything positive for you. In fact the opposite is now occuring. And Bitcoin is what percentage of financial transactions?

3. The foundation of this currency scheme is a basic encryption technology? Really? That is what the FOUNDATION of a currency system should be? "Yes, our currency is based on ENCRYPTION!!!" Oh, now I feal confident! I can see Encryption being a desireable FEATURE of a currency scheme but not its very foundation. The vast majority of people do not even know what Encryption is, let alone setting their entire economic future on top of it. (That's what blockchain is - a basic encryption technology. Works great to keep your documents private, but to make it the basis of currency? Really?)

4. The potential for disruption of electricity service and network outage INCREASES with each day. And you want to put your entire economic future on top of that? Yes, banking today is similarly fragile, but it also includes fallbacks (printed notes, checks, money orders, etc.).

That is a brief beginning. This blockchain crap is worse than Windows 3.1. I am not interested in betting my future on Windows 10, let alone Win 3.1. If you want to that is your choice. But I'm not getting on your raft.

What about when high volume of traffic (supply,& demand) increases the price of processing until the "gas" or other transaction fee is exhausted or too low to get transactions processed promptly. If transactions can't occur promptly, confidence will eventually become lost, and lost confidence dooms a currency!

The size of a rapidly growing ledger can irronically cripple a decentralise blockchain and could cause a banking system to be created, because the rapidly increasing decentralised data volume and full local storage may become impractical. Wallets are not a decent solution because you then have to trust a service provider, like say coinbase, who have lost trust! I suspect that a distributed heirachy of trust, with frequent cross-audits, and compact trust tokens, will be required to significantly reduce the volume of data traffic.

I will not be surprised if "Blockchain" is adopted even though it is a heinoously crappy way to do business. There are lots of other crappy things out in the world that the fawning sheep have willingly adopted. There are much, much better ideas to solve the fundamental problem. If you wish to trim your sails for the crappiese island in the archipeligo be my guest. I elect to not waste my time arguing with those unwilling to educate themselves or to THINK.

Since you fancy yourself someone who "understands how it works" give us a 100 word summary that captures the essence of the underlying technology. Not a repition of the hype but an actual explanation. I have BUILT systems much larger and more sophisitcated that this. I have also thoroughly studied the encryption technology that "blockchain" refers to. It is nothing new. The hype suggests that it is. In reality it is a very old idea. Or in other words, lots of lipstick on a very ugly pig.

Blockchain is the tunnel, not the money. andyes it does have issues with compatibility on the outside its little world. But it is happening now. The problem is in no small part linking BC to legacy tech.

last month 3.2BB in oil traded russia to china.. no clearing, no waiting, no credit risk. The currency was GOLD. Russia got gold from china for oil. Russia was paid instantly through changein ownership at the exchange level. Russia for now, is keeping that gold in SGEX.

Thepoint of Blockchain is that in nationallyowned banks itis a no brainer and will continue to be used more and more. Centralized control makes it easier to implement.

Meanwhile in the US, banks arefreaking out on how to get on board. At first, BC will eliminate their credit departments andback offices. that isa good thing. Then it will remove theneed for the bank altogether unless the bank somehow "owns" the BC tech.But dont fret, thebanks always find a way.

BC makes the farmer in india who for state reasons cannot use his farm as collaterol able to monetize it free and clear if he has title. It makes less liquid assets monetizable C2C. Think about that.

Im making a currency in beaniebabies.... blockchain is the pipeline. If this was done in their heyday it would be a home run.

Blockchain will remove shackles on Gold real value.

Bitcoin was created because noone had an established franchise on electrons. Blockchain with Gold behind it is one possible future in China / Saudi / Russia Oil deals.

Agreed. Watch when Google releases a beast with an IBM JV where you use G-Coin at a discount in exchange for USD when you buy thru the search page. Then, watch as US banks block Bitcoin account receving of money for Bitcoin acccounts siting "know your client" crap. Then watch banks permit G-Coin.. R amazon Cash as a substitute for USD.

My case for choosing cryto money is antisemenetic. I've had more than enough of Jewish money and its implications. So any monetary object put out by Amazon and Google will have only hot potato value for me.

Bitcoin: a great idea getting screwed by thousands of greedy people. I knew this would happen. Bitcoin could only work if it was the ONLY crypto currency. Without exclusivity, the whole concept becomes slowly destroyed. It's like everyone setting up a printing press in their basement to print dollars. The 0.5% are going to take this whole crypto thing right where they want it, and you aren't in the club.

Thats what I think also, it's another way to drain everybody else of their wealth. You see I want in also, but I want in like when Bitcoin was going for hundreds at a dollar. You see they are going to introduce something or back one of the new ones that are just coming out or just about to come out and use that for their platform. I want to know which one so I can invest first and then sell out later. Because you can best assured that the bankers won't allow this to last to long especially if there is a market turndown.

Pink dreams of the opportunity to obtain wealth without labor, at all times, captured the consciousness of fools.But these dreams always ended in failure.Fools have always been deceived.The new fools think they are very smart.Why?Because now he calls himself not just idiots, but crypto idiots!

This is certainly a great progress and a big step forward, cheers! LOL!!